Kyle Bass, one of the hedge fund managers that made a killing in
the subprime fiasco (basically by taking the same bet as John
Paulson) offers his, clear-sounding ideas to regulating the
financial system going forward.

Here's the nut of it:

I believe there are three important changes that are necessary to protect the taxpayer from future crisis
and restore the US banking system to its historically strong position. First, it is imperative to separate
depository institutions from proprietary capital groups and derivatives traders. We cannot have
systemically important depository institutions taking enormous risks in the derivatives marketplace.
Second, I thought we learned that off‐balance sheet = BAD during the Enron and Worldcom fiascos.
Bring all risks and leverage back on the balance sheet in order for regulators and investors to be able to
compare apples to apples. Third, we must determine if 25X leverage is the correct minimum level of
capitalization. Mandating a 10% capital balance does not seem too far away from where we need to be.
10X leverage is plenty, and it still might not be stringent enough in an environment where we have a
multi‐standard deviation event and 10% losses become the norm.